British Pound posts modest gains against weak USD as this week's FOMC meeting holds market attention

GBP/USD finds renewed buying interest as several supportive factors come together at the start of a new week.
GBP draws support from expectations of a BoE rate hike, while lower US bond yields restrain the USD's recovery.
With central bank and data risks ahead, Middle East tensions and a hawkish Fed may cushion the USD against further losses.

Buying interest returns to GBP/USD around 1.3360 during Friday's Asian session, arresting last week's modest retreat from the highest level since 16 September. However, with attention firmly on this week's key central bank event, bulls may hold off on fresh positions until the pair shows sustained strength and establishes itself above 1.3400.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Wednesday brings the US Federal Reserve's (Fed) policy decision, with interest rates expected to remain unchanged after its two-day meeting. As no updated economic projections are due, market participants will examine the accompanying rate statement and Fed Chair Kevin Warsh's remarks at the post-meeting press conference for guidance. Thursday's major US releases, the Advance Q3 GDP estimate and the Personal Consumption Expenditures (PCE) Price Index, will also shape expectations for the Fed's policy trajectory. Those expectations will, in turn, influence demand for the US Dollar (USD), providing a meaningful catalyst for GBP/USD.

For now, the USD's attempted recovery from the three-week low reached last Thursday remains constrained by the recent steep fall in US bond yields. By contrast, the British Pound (GBP) is benefiting from growing expectations that the Bank of England (BoE) will tighten monetary policy, following stronger-than-expected UK inflation readings and resilient labour market data. Markets are assigning roughly 95% odds to a 25-basis-point (bps) BoE rate increase at its next meeting on 5 November. This supports GBP/USD and strengthens the case for the recent sizeable recovery from the nearly four-month low recorded on 14 October to continue.

Even so, investors continue to price in a nearly 80% probability of a December increase in US borrowing costs. Geopolitical risks also remain a source of support for the dollar, with US-Iran peace negotiations at a standstill. On Sunday, the Iran-backed Houthis in Yemen threatened to continue attacks on Saudi Arabia's King Khalid Airport in Riyadh. These factors could contain declines in the safe-haven Greenback and restrict GBP/USD's upside. Waiting for sustained strength and acceptance above 1.3400 therefore remains prudent before taking fresh bullish positions. The supportive fundamental setting nevertheless suggests that corrective declines could attract buyers.

GBP/USD: daily price chart

Technical Outlook

Two nearby barriers remain above GBP/USD: the 100-day Simple Moving Average (SMA) at 1.3390 and the 50.0% Fibonacci retracement at 1.3403. If the pair closes above 1.3403 on a daily basis, the path would open towards the 61.8% retracement at 1.3466, followed by 1.3556.

The first downside support lies at the 38.2% retracement of 1.3341. Below that, buyers would be expected to take greater interest around the 23.6% level at 1.3263. A sustained breach of 1.3263 would bring the structural Fibonacci anchor at 1.3137 into view.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Pound Sterling: Key Questions Answered

What should you know about the Pound Sterling?

As the United Kingdom's official currency, the Pound Sterling (GBP) is also the world's oldest currency, dating back to 886 AD. According to 2022 data, it ranks fourth globally by foreign exchange (FX) trading activity, representing 12% of all transactions and average daily turnover of $630 billion. Among its principal trading pairs, GBP/USD, known as ‘Cable’, represents 11% of FX activity. GBP/JPY, which traders call the ‘Dragon’, accounts for 3%, while EUR/GBP accounts for 2%. Responsibility for issuing the Pound Sterling rests with the Bank of England (BoE).

Why do Bank of England decisions matter for the Pound Sterling?

Monetary policy set by the Bank of England has the greatest influence on the Pound Sterling's value. Whether its main objective of “price stability” has been met guides the BoE's decisions. This objective means keeping inflation steady at around 2%, primarily through changes to interest rates. To curb excessively high inflation, the BoE raises rates, increasing the cost of credit for households and businesses. GBP generally benefits because higher rates enhance the UK's appeal to global investors looking to place their funds. Inflation that drops too low, by contrast, signals slowing economic growth. Under those circumstances, the BoE will consider rate cuts to make borrowing cheaper, encouraging businesses to finance more investment in projects that generate growth.

Why can economic releases move the Pound?

The Pound Sterling can respond to economic releases because they provide a measure of the economy's health. GDP, Manufacturing and Services PMIs, and employment figures are among the indicators that can steer GBP. Sterling benefits from economic strength through greater foreign investment and the possibility that the BoE may raise interest rates, which would directly strengthen GBP. Weak economic readings, on the other hand, are likely to weigh on the Pound Sterling.

Why is the Trade Balance important for the Pound?

The Trade Balance is another major economic release relevant to the Pound Sterling. Over a specified period, it tracks the gap between a country's export earnings and its spending on imports. Strong overseas demand for a country's exports creates additional demand for its currency as foreign buyers seek to purchase those goods. A positive net Trade Balance therefore supports the currency, whereas a negative balance has the opposite effect.